Homeowners needing a remortgage are encouraged to begin shopping for a new deal or they could miss out on the current opportunities and benefits available now. In the past weeks, lenders have become optimistic and competitive in their offers dropping some interest rates below the current standard base rate of 5.25%. However, as recently released data and statements have made it clear that the rate could stick for a good while, lenders are changing their offers to reflect the forecasts and expectations for the economy and lending.

The MPC met for the first time in 2024 on the first day of February to discuss the economy, inflation, and vote on the standard base rate as whether to allow it to remain steady, increase, or decrease it. 

The last two reports on inflation conflicted with inflation to November showing a decline to 3.9% while inflation growth in the twelve months to December increased by 0.1% to 4.0%. The increase is nominal, but the Bank of England’s Monetary Policy Committee (MPC) will not overlook an increase no matter how small. By growing to 4.0%, inflation has reached a level double the Bank’s target rate of 2.0%.

Due to the report on inflation, it was expected that the MPC would not consider any cut to the base rate to offer relief to borrowers or match the action of lenders who have taken it upon themselves to lower rates. With the increase in inflation, it was more likely the MPC would hold the rate steady. There was always the choice to increase the rate, to keep inflation under control. 

There are experts that argue the rate should be increased as it could lower inflation faster and while borrowing would be more expensive, lowering inflation quicker would lessen the duration of its impact on the economy. Those in favor of shortening the duration of inflation’s impact on the economy note the relief to consumers is rarely immediate, so the strain inflation has on household budgets will be felt long after it reaches or falls below target. Ending its hold on households sooner would therefore be a better option.

The MPC majority vote for the February meeting resulted in favor of holding the rate steady, though there were two members that voted for an increase. While the majority voted for a stay, it should not be overlooked that the MPC has stated they would not hesitate to hike the base rate if needed as inflation is seen as a much greater enemy to the economy than higher borrowing rates.

The result of the meeting could have been seen as just another vote to hold the rate steady, and a vote of confidence in the efforts of the MPC at having reached the peak rate. However, the lending market did not view it the same, as many lenders began pulling back their lowest interest rate deals. Some increased their remortgage rates, while leaving their lowest interest rate offers for mortgage purchases.

The difference in offers for remortgages versus mortgages could be viewed that with higher rates buyers will be better prepared to handle current borrowing rates as they will need to qualify for their purchase. However, homeowners could be in a more difficult situation.

Many homeowners secured their mortgage when rates were much lower. For instance, homeowners coming to the end of their two-year fixed rate mortgage this year will have secured their deal in 2022. It was in December 2021 the MPC voted to increase the pandemic impacted historically low base rate of almost zero at 0.1%. The December 2021 meeting moved the rate to 0.25% and that rate remained until the MPC vote in February 2022 increased it to 0.50%. Every MPC meeting in 2022 resulted in a rate hike, but in comparison to today’s cost of borrowing there is a substantial difference. 

Homeowners coming to the end of their two-year mortgage term in February 2024 will have secured their rate in either January or February 2022 when the base rate was 0.5% or less while now the base rate is at a sixteen year high of 5.25%. 

Lenders will likely view homeowners as being at more of a risk of whether they can handle the higher costs of their repayments. Therefore, the risk in lending is higher than with new buyers and that viewpoint will result in higher rate offerings in remortgaging.

No doubt the next inflation report due 14 February will influence lending offerings as soon as next week and will influence the vote of the MPC during their next meeting on 21 March. Meanwhile, those intending to borrow, especially homeowners seeking a remortgage should consider shopping for a deal sooner rather than later.